He writes, "Super-premium beauty care is on course to deliver its strongest annual performance in more than a decade. For the three months to the end of June, category leader Estée Lauder delivered a jaw-dropping 84% jump in profit thanks to upbeat sales across a raft of different markets, including Italy, the UK, Japan, China and Brazil. Total net sales for the full fiscal year broke US$10 billion for the first time ever.

"The best results in Estée Lauder’s portfolio came from top-tier brands, notably Crème de la Mer, Tom Ford and Jo Malone. Each generated value growth of more than 20% in the latest quarter. The company has since adopted a cautionary tone about the year ahead, but we should not read too much into that. Restraint is part of Estée Lauder’s business persona. In fact, the prospects of further upbeat results look strong, and there are a number of reasons why.

"Firstly, over the last two years, the company has channelled greater resources behind fewer products. Clinique, for example, dramatically cut its new product offerings. The strategy is now bearing fruit because there has been more targeted focus on building the cachet and prestige value of core brands. This is playing out especially well in the emerging markets.

"Secondly, Estée Lauder’s expansion into emerging markets has been conservative but astute. It is significant that L’Oréal launched into China a decade earlier, yet Estée Lauder is fast catching up in terms of market share. Between 2007 and 2012, Estée Lauder’s compound annual growth in China’s premium cosmetics category ran at 30%, according to data from Euromonitor International, compared with 19% for L’Oréal (both measured at fixed US dollar prices). In China, spending on luxury beauty care has not been badly affected by the clampdown on extravagant gift giving.

"Thirdly, over the last year, Estée Lauder has focused on raising brand awareness in mid-sized cities in both China and Brazil. In China, this strategy has been helped by a big increase in outbound travel from consumers living in the interior. Estée Lauder is tapping into this market due to strong visibility in key outbound destinations such as Hong Kong and Tokyo (not least in the airports).

"Fourthly, Estée Lauder has held firm in its commitment to prestige brands, rather than segment too heavily into mass-market products. The latter is big business in the emerging markets, but over-exposure at lower price points can dilute the cachet of super-premium brands. A similar focus on high-end branding has worked extremely well for French fashion house Hermès over the last year.

"Like Hermès, Estée Lauder is cautious in its outlook for the year ahead, highlighting potential for lacklustre demand in Southern Europe as well as ongoing weakness in South Korea. However, Estée Lauder has been bold in its portfolio focus, not cautious, and that is what will count going forward.

"In a global beauty care market where there is intense pressure to bring new products to market, it seems counter-intuitive to cull new offerings. Yet, by so doing Estée Lauder has freed up substantially more cash to spend on its prestige portfolio.

"A cautious expansion drive does not imply lack of ambition either. We should expect to see Estée Lauder-owned brands grow in visibility across the myriad of small and mid-sized cities of China, emerging Asia and Latin America over the next five years, albeit at a controlled pace.

"It is worth remembering that the company’s founder of the same name (who died in 2004) used to follow her brands—in person—to every store opening or new cosmetics counter in the US and around the world. That personal touch is part of the heritage of Estée Lauder, and ties in with the prestige value of its brands. Resisting segmentation pressures and the temptation to accelerate expansion in the emerging markets could become tougher, however," Walker concludes.